What is contract manufacturing?
Contract manufacturing is not a new concept in the agricultural sector. Many goods such as broilers, cattle, vegetables, and grains grow under contract manufacturing. Growing consumer preferences for quality have made contract manufacturing inevitable. Therefore, large-scale manufacturers make contracts with growers to ensure they get specific grade qualities and quantities of the agricultural product.
Contract manufacturing in the tobacco industry: –
When it comes to tobacco, is no different than any other agricultural product. It is one of the most sensitive products when it comes to quality. Cigarette manufacturing requires specific blends of various tobaccos. Thin-line differences in grades and curing of tobacco make tobacco manufacturing extremely critical. Therefore, manufacturing giants prefer making long-term contracts with tobacco growers to get the desired quality standard of tobacco products.
Benefits of contract manufacturing to tobacco growers: –
Being an agricultural good, the supply and growth of tobacco depend on various factors beyond the grower’s control. These are weather-related factors. This poses risk for the growers. At the time of plantation, the growers do not know how much shall each grade or kind of tobacco sell. This is another risk associated with growing tobacco. Furthermore, dealing with buyers and intermediaries reduces profit margins for the growers.
Establishing long-term contracts with tobacco manufacturers shall control all these nuisances. Firstly, contracts shall reduce the risk and uncertainty associated with growing tobacco. The growers have an assurance that they have a buyer for a certain type and grade of tobacco. This gives them the motivation to grow the required quality of tobacco. Moreover, they do not have to bargain or deal with several intermediaries who diminish the profits of tobacco growers. Tobacco manufacturing contracts with established companies benefit small and medium tobacco growers through technological collaboration, education, and training regarding tobacco harvesting. These are some reasons why farmers prefer tobacco manufacturing contracts.
Benefits of tobacco contract manufacturing to tobacco product manufacturers: –
Consumers today have become very particular about quality and experience. Especially, tobacco consumers are very finicky about the taste and experience of the product. That is why manufacturers go to all the possible lengths to ensure good quality tobacco.
Tobacco contract manufacturing allows manufacturers to get different grades of tobacco at their manufacturing plant for making different tobacco products. For example, for export goods, they establish a separate assembly line, whereas, for a more affordable tobacco product, they may use different grade tobacco. Thus, contract manufacturing lets a manufacturer brand and sell different products under the same roof. A particular manufacturer may have both American and Virginia blends of tobacco products. Similarly, it may sell different flavors, ranging from the full flavor, light to menthol. Hence, contract manufacturing is a great way to practice brand differentiation to sell to different markets.
Another benefit of contract manufacturing is that it allows manufacturers to have control over the quality of output. The ability to oversee tobacco growth from plantation to harvest lets manufacturers maintain consistently superior quality agricultural output. They can implement research and development findings to improve the quality of their tobacco from farm to factory. Some contracts require producers to allow manufacturers to monitor and inspect the stages of tobacco growth, including crop progress, curing process, testing, and sampling of tobacco and soil. This level of involvement ensures premium quality tobacco products.
Tobacco manufacturing contracts let manufacturers practice production standards, regarding both the quantity and quality of tobacco. For example, some manufacturers make conditions like abstinence from polyurethane, polystyrene, or fiberglass insulation in the curing chamber of the curing barns. Similarly, they set tolerance limits for tobacco-specific nitrosamines. Also, they set delivery conditions such as weight, bales, and packaging to standardize the mechanism as much as possible. This makes the check and balance of quantity and quality easier.
Tobacco Contract manufacturing also makes it easier for manufacturers to ensure that the farmers abide by the governmental rules and regulations regarding tobacco growth. This includes the presence of proper heat exchangers in curing barns, government-approved pesticides, fungicides, growth regulators, and other chemicals, and overall, the use of certified tobacco growth practices.
Given so many benefits of contract manufacturing to both tobacco growers and manufacturers, it is no wonder that most global tobacco manufacturers nowadays resort to such innovative and collaborative methods.
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